A senior figure in the EIS community is warning advisers that they should start their EIS ‘season’ early, way before the traditional period of January to the end of the tax year.
CEO of Kuber Ventures Dermot Campbell says that advisers should start looking at their client’s EIS needs next month if they want to avoid any problems with expected lower capacity levels for 2016 and 2017.
At the heart of his warning is the fact that recent legislation changes have reduced market capacity and increased the underlying risk profile of EIS.
The removal of the ability to invest in solar energy production within an EIS investment has, says Campbell, reduced the market capacity by some 350 million pounds for the year 2016/17. This, coupled with a maturing book of some 200 million, adds Campbell, is likely to has a considerable impact upon overall capacity.
What’s more, the changes have removed the historical lower risk asset classes such as renewable energy.
Campbell says that the changes are an attempt by the HMRC to make sure that EIS investments are made not just in the letter of the law, but also within the spirit.
He highlighted the fact that last year, many advisers brought their EIS “season” forward, sending out recommendations in October and by the end of the tax year, there was very little capacity left.
Campbell said: “Advisers who delay in running due diligence on EIS investment houses and establishing access to capacity in the appropriate assets run the risk of not being able to secure the right assets. This could mean that, towards the latter end of the ‘season’ investments are made purely on the basis of availability rather than research.”
Campbell added: “Advisers have long diversified equity investments using platforms, enabling the use of multiple investment managers and different asset classes to reduce risk. With the changes in legislation it is now important that advisers apply the same principles to EIS and SEIS investing.”
Campbell believes that advisers can still manage the risks of EIS investing by building diversified portfolios. This is now significantly more important as a risk management tool.